Best Airline Credit Cards of 2020

How are the number of miles required for a flight determined?

Frequent flier miles are a loyalty program perk offered by many airlines to influence a consumer’s decision to fly a particular airline over another so that they can accumulate enough points/miles to be awarded a free seat upgrade, free domestic flight or free international flight. The number of miles awarded for these perks is based on the average cost to the airline to deliver customers from point A to point B, as well as the perceived value of these perks to the average customer.

Airlines also sell the ability to accumulate miles to partner companies to award to their customer base as well. Typically, airlines will award free domestic tickets to passengers after accumulating approximately 15,000 airline miles and free international tickets to passengers after accumulating 40,000 airline miles.

Perceived value for these items typically runs between approximately 2.3 cents per mile for domestic flights and 3.8 cents per mile for international flights. However, what you get for these perks normally equates to 1 cents per mile for domestic flights and 2 cents per mile for international flights. So the airlines are still making money off these “perks.”

What makes for a good rewards program?

One should consider it from both the consumers’ and the brands’ perspectives.

From the consumers’ perspective, customers should feel there is value to the program that makes it worth their effort. This is essentially a cost-benefit analysis, which we all do all the time. Customers weigh items such as how often they believe they’ll be able to be rewarded, how often they’ll use the service to accumulate rewards, what the requirements are to be rewarded, how flexible the rewards are in terms of use with one or multiple airlines, and what it will cost them in terms of time and money. With airline credit cards, consumers consider what fees might be incurred on a monthly or annual basis, what the penalties might be if they don’t pay off the card in full every month, what the interest rates are, and how many places the credit card can be used.

From the brands’ perspective, the most important element in co-branding is that it must be of equal value to each participant. That is, an airline and a credit card company or bank must derive equal benefits from the relationship. For airline credit cards, the card supplier benefits from income it receives in the form of service charges levied on the vendor where the consumer uses the credit card, interest assessments added to a statement when the user doesn’t pay the card in full each month, as well as fees it charges to the consumer to use the card on an annual basis. For the airlines, they benefit from the fact that most people will purchase an additional ticket or tickets when they travel, thus increasing the carrier’s income for the flight, as well as fees for items such as extra bags being checked or seat upgrades that traveler chooses.

What is the best way to redeem credit card miles?

Customers should redeem miles when doing so will help them realize value. For example, let’s say that a customer would like to travel to Mexico and is uneasy about spending money on a hotel room. If using miles will change a customer’s view of value to the extent that the purchase has more benefits than costs, then customers should redeem miles. Don’t use miles for routine purchases which already are seen in a favorable light, rather, use miles for purchases that need to a dose of extra value.